As First Time Home Buyers there are many things you should consider before signing the mortgage documents for our new home. The steps you take from the moment you decide to buy, can save you thousands in interest and penalties down the road. What are the things you should do and more importantly ask your Mortgage Broker?
1. Get a pre-approval – most Realtors will ask you to do this before starting a home search and it’s important to know the price range and corresponding payment that you can qualify for and are comfortable with. In a pre-approval Mortgage Brokers will look at the following:
a. Job history and source of income (this can be complicated unless you have been at a permanent full-time job with guaranteed hours for many years)
b. Credit rating – an excellent credit score is over 720 but we can have success with lower scores as well.
c. Source of your down payment (quick fact – minimum down payment for all home buyers is 5%) – this can be from savings, RRSP, gifted from an immediate family member or potentially borrowed from a line of credit.
d. Asset review – (to show your net worth and financial stability)
e. Liabilities – these are your revolving debts such as credit cards and lines of credit and any installment loans such as car payments. Most, but not all, debts appear on your credit report so it’s important to disclose any child/spousal support obligations or debts not listed on your credit report.
** Remember that a pre-approval is not a guarantee of a mortgage. The Lender also has to approve the property that you choose. If there is a job loss, change in credit (more liabilities than disclosed or a drop in your score) or any other material change the Mortgage pre-approval may be pulled – it’s important to work with a Broker who can protect you and present you with other Lender options should there be a change in your circumstances.
2. Ask your Broker/Bank Rep about the penalties that may be associated with the fixed rate mortgage term they may be quoting you. A 5 year fixed rate from the bank can come with punitive penalties (think 4.5% of your balance) if you decide to break the mortgage before the end of the term for any reason – and 6/10 Canadian’s will so it’s important to protect yourself. There are many products and lenders who have fairer penalty calculations.
3. Ask your Broker/Bank Rep about the Property Transfer Tax Exemption that you may be entitled to as a first time home buyer.
4. What are closing costs? Consider legal fees, appraisal costs, title insurance, home inspection, property taxes, interest adjustment date – it’s important to have all of the closing costs explained to you in advance.